BEXP - Drillers Again: Vol Up, Stock Up

Discussion in 'Options' started by livevol_ophir, Oct 22, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    BEXP is trading $20.99, up 4.0 with IV30™ up 5.4%. The <a href="">LIVEVOL™ Pro Summary</a> is <a href="">in the article</a>.

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    This is another driller/explorer with jumping vol and stock. On Wednesday I wrote:<b><a href="">Energy XXI (EXXI) - Elevated Vol Starts to Drop</a></b>.

    On Oct 8th I also wrote:<b><a href="">* UPDATE: McMoRan (MMR) - Vol Exploding Again</a></b>.

    BEXP has traded over 5,000 options in the first three hours on total daily average option volume of just 2,970. The Nov 21 combo is trading the most (looks like call buyer/put seller) . The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

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    The Options Tab (<a href="">in the article</a>) illustrates that the calls and puts have larger OI than trade volume. From what I can tell, the call OI is long, so this would be a double down. The put OI actually looks long as well. If I'm right, that these puts are getting offered down (seller initiated), then the OI should go down tomorrow.

    I've also included the Time &amp; Sales snapshot (<a href="">in the article</a>) for those puts. You can see them trading on the offer, but on a tight market. If you hold the Ctrl button down and click the trade in LVP, you will see these were offered down.

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    This is pretty cool. The Nov 23 calls are bid up while the Dec 23 and 24 calls are oddly low vol. Could make for a nice trade.

    Finally, the Charts Tab (6 months) is <a href="">in the article</a>. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV30™ vol difference.

    We can see the stock trended up from ~ $16 to ~$21 in just a month. We can also see the vol now touching the long term realized.

    <b>Possible Trades to Analyze</b>
    1. Try to spread that skew. Buy the Dec 23 calls for $0.95 and sell the Nov 23 calls @ $0.60. That's a net debit of $0.35, selling 55 vol and buying 51 vol. One major problem though is earnings... They fall in Nov (projected).

    2. Make a same month skew trade. Check the skew chart back out and look at the vol difference between the Nov 22 and 23 calls. That call spread would cost ~ $0.30 and sell higher vol than it purchases in a call spread, which isn't the norm. That's a small bullish bet with a 7:3 MaxGain to MaxLoss ratio.

    3. Doing some 1x2 call or put spreads might be worth a look. Check the skew charts and find some good entry points. Keep in mind, short more options than you're long is very risky.

    I don't love selling this vol naked (like an ATM straddle) for three reasons:
    1. The IV30™ is still ~fair to long-term realized (see charts tab).
    2. Earnings are in this cycle.
    3. This vol has a good chance of creeping up if it does what MMR did. If you're feeling frisky, maybe a vol sale after a few more points of vol rise (if that happens) could be a risky play.

    This is trade analysis, not a recommendation.

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